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Budget surplus unlikely to yield local-aid boost

By Matt Murphy, State House News Service

Updated:
06/19/2013 07:45:54 AM EDT

BOSTON -- A state budget surplus developing this year as tax collections outperformed lowered expectations is unlikely to yield any significant resources to pour back into local aid, government programs or tax cuts.

As the House prepares to tackle a mid-year spending bill on Tuesday that would add $96 million to fiscal 2013 spending, the Patrick administration cautioned that much of the $539 million surplus to date is unavailable for spending, largely due to a pair of recent changes to state finance law.

The budget bill covers expenses such as snow and ice removal and special elections, as well as a $200,000 reserve fund for home modifications for victims of the Boston Marathon bombing and targeted welfare system reforms.

State laws approved in recent years will require the Patrick administration to sock most of the money away into the state's reserve account, already one of the largest in the nation.

"I think people have noticed the magnitude of above benchmark revenues for fiscal year 2013 and some have certainly inquired about the availability of those funds to support programs and initiatives. The reality is the funds are largely spoken for," Administration and Finance Secretary Glen Shor said.

Once the governor finishes adhering to two laws dealing with tax collections from tax settlements and capital gains, there will be about $80 million left and administration officials believe those funds might be needed for unexpected year-end spending.

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June is the last and one of the largest months of the fiscal year for state tax collections, and could go a long way to determining how much is actually left over when fiscal 2014 starts on July 1.

"That revenue must be conserved at this point to ensure we can pay for any late-breaking budget exposures that may emerge in the remainder of FY13," the Executive Office of Administration and Finance advised in a two-page summary of the state's revenue picture.

The majority of the above-benchmark revenue in fiscal 2013, approximately $459 million, has come from capital gains taxes and one-time tax settlements.

State law requires that capital gains in excess of $1 billion, or $350 million so far this year, be deposited in the state's "rainy day" account, while any one-time tax settlements greater than $10 million must also be stashed away in the reserves.

Shor last week told municipal officials, as he has said repeatedly over the past few months, that the strong performance is due in large part to actions taken by investors in later 2012 to accelerate their earnings before federal tax hikes took effect in January.

With 85 percent of the surplus automatically earmarked for the stabilization account, the administration is downplaying expectations about the availability of a big surplus.

The revenues are considered a one-time occurrence, and not a predictor of future revenue surges. The administration is not considering revising revenue estimates used to build the fiscal 2014 budget still under negotiation.

Shor also said the House and Senate would not need to tap into the small surplus available to cover the mid-year spending bill on their dockets, but can't go much beyond the spending already proposed. The supplemental budget being considered by the House Tuesday, he said, is paid for "within benchmark revenue" from underspent accounts and other sources.

"The point is were they to go well beyond the parameters of the supp and fund initiatives adding considerable amounts then that starts to become a problem because there's not a revenue source for that," Shor said.

Gov. Deval Patrick in December responded to sluggish withholding and sales tax receipts by slashing $225 million in spending from the budget and revising tax estimates downward by $515 million. The administration's new estimates on sales and withholding taxes have "largely proved accurate," but the revised estimate it did not account for the surge in capital gains.

In May, Patrick reversed a limited number of emergency cuts, restoring $21 million to accounts for special education, regional school and homeless student transportation, and other accounts.

Patrick and the Legislature have already added $158 million to this year's budget by passing a pair of mid-year spending bills, and also drew on $200 million from the "rainy day" fund to close the budget gap identified in December. The governor requested $119 million in additional spending through the bill up for consideration in the House Tuesday to address unpaid winter road-clearing bills, special election costs, summer jobs for teens, and costs associated with legal representation of indigent defendants facing criminal charges.

During the recession, Gov. Patrick and Democratic legislative leaders drained significant amounts from the raindy day fund to support spending and offset a decline in tax collections. The stabilization fund balance then increased by more than $709 million in fiscal 2011 and another $273 million in fiscal 2012. State Senate budget writers estimated in May that the fund would have $1.3 billion heading into fiscal 2014.

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